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The two poles of modern economic life are free market capitalism and socialism. Capitalism essentially built the modern world. Invented in the Netherlands and England (17th century), capitalism was a major factor in the industrial Revolution. Capitalism is surely why the Industrial Revolution occurred in the West and not China which for most of the modern era (meaning since the past two millennia) has been more technologically advanced than the West. There were of course other factors such as Chinese unity compared to competing Western nation states, but capitalism musdt be one of the factors. For the first time in history, ordinary individuals in substantial numbers were leading prosperous lives. Except in America, capitalism developed before the rise of democracy leading to a concentration of wealth. American independence began in the same year that Adam Smith published Wealth of Nations (1776). And the combination of democracy, capitalism, and a virgin continent created a world power out of a wilderness in a century. In Europe a prosperous middle-class emerged, but the working-class did not fully share in the bounty of capitalism. This was the genius of socialism, Karl Marx published Das Kapital (1867). Many in Europe took to his theories as virtually a new religion. In the chaos of World War I, the first Communist state was born, combining a totalitarian political system and socialist economics. It appeared precisely where Marx predicted it would not--pre-industrial Russia. World War II is often seen as the showdown between Fascism and Communism. It is more correctly viewed as a conflict between liberal democracy and the totalitarians. After World War II similar Communist regimes in Eastern Europe and Asia leading to the Cold War, an economic contest between the capitalist United States and the Communist Soviet Union. . In addition, the newly independent Third World adopted socialist policies which they were convinced would jump start economic development. It proved a disaster. Communism failed. When Communism and Capitalism went toe to toe (divided Germany and Korea), it was clear that capitalism was the most effective and prosperous system. In the Third World, not only did socialism fail to jump start development, but living conditions actually declined in many of the new nations. Eventually the inherent weakness of socialist economics destroyed the Soviet Union. And Third World leaders began to see the inherent strength of capitalism. This began with the Asian Tigers (South Korea, Singapore, and Taiwan). Eventually market reforms were adopted in China, resulting in an economic transformation of staggering proportions. But as capitalism was bringing prosperity to the Third World at a pace never believed possible, socialism as undermining the economies of Europe. The bright hope of European unification beginning with the European Coal and Steel Community (1951) brought considerable gains in the aftermath of World War II. Europe achieved economic successes without parallel in its history. And it was widely believed that the European Union (EU) (1993) and the Euro would ensure continued prosperity. But Europe had increasingly turned to Socialist economics and by the time the contrast between the market reforms and the economic straight jacket of socialism was becoming increasingly apparent. This finally reached a crisis when the EU periphery began to go bankrupt (2009). The EU managed to paper over this crisis, but the unresolved problems at the periphery are now appearing at the EU core (2014). And s problems festered an economic stagnation set in, Europeans have begun to reject mainline political parties supporting socialist or socialist-light policies. With Brussels supporting these policies, Europeans have begun to increasingly question the European Project. Britain voted to leave the EU (2016). And Euro-skeptic politicians are growing in strength throughout Western Europe (including France, Italy and Germany). If even one of the core EU countries was to follow Britain out of the EU, the whole European Project would be in question. And this should not be seen as a purely economic problem. When the liberal democracies fail with economic polities, the dictators and totalitarians are empowered.
The two poles of modern economic life are free market capitalism and socialism. And between these two poles are a multitude of permutations.
Free market capitalism is an economic system in which the means of production are privately owned and operated. The economic goal is profit. Investments and business expansion are are determined by private decisions in the free market as opposed to the state through central economic planning. Prices are set in the open market by supply and demand. Private individuals invest in new enterprises seeking profit. Government in a capitalist system should pursue laizze faire policies. Laissez faire is a French term meaning "leave alone," meaning that the Government should not interfere in the operation of the free market. The Dutch invented capitalism which was appropriated by the English. It is no accident of history that those two small countries prevailed in deadly conflicts against much larger and potentially more powerful countries. The mechanics of capitalism were clearly set out by the 18th century philosophes, most notably by Adam Smith in tThe Wealth of Nations (1776) just as capitalism was generating the Industrial Revolution which was reshaping Britain. Smith describes an invisible hands, meaning the self-regulating operation of the marketplace. Economics has been called the 'dismal science'. Some economists can be found to support virtually any economic system or policy. One of the few irrefutable economic trends is that those countries which more closely approach Smith's free market approach are the most prosperous (America, Britain, France, Germany, and Japan) and those countries which most greatly diverge and interfere or even control the market tend to be the least prosperous (Cuba, North Korea, the Soviet Union, and Vietnam). The change in China after the introduction of capitalist economics is the most stunning confirmation of Smith's economic theories. Not only are capitalist countries the most prosperous, but they are also the most creative and innovative. Liberals in the 19th century struggled to remove the heavy hand of government, mostly monarchies, from the economy. Their successes were part of the massive increase of wealth during the century. It is interesting to hear politicians talk about change and new ideas. Adam Smith clearly described how a nation can achieve prosperity and the passage of time has only confirmed that he was correct. Smith did not believe as subsequently advocated by important industrialists that there was no role for government. Smith saw the need for the government to set rules to ensure the operation of the free market. Smith foresaw that concentrations of capital could prevent the operation of the free market. While capitalism has clearly been shown to be the most successful economic system, it is also clear that the Government is needed to establish and enforce minimum social, health, worker safety, and environmental standards.
The other basic economic system is socialism. Socialism is an economic theory advocating public or common ownership and cooperative management of the means of production and allocation of resource in a society. And like capitalism, socialism had an outstanding theorist--Karl Marx. Mark published Das Kapitalabout a century after Smith's ground-breaking work (1867). Unlike Smith, very little of what Marx wrote proved to be accurate or workable. Marx explained that the driving force of capitalism was the exploitation of workers. He postulated that essential source of capitalist profits was the unpaid labor of wage laborers. He postulated that the excesses of capitalism would lead to worker revolutions in advanced industrial countries and the eventual creation of a communist society in which the state would whiter away. This of course did not occur. Unlike Adam Smith who captured the nature of man, Marx's image of the future proved fanciful. The communist Revolutions occurred in China and Russia, the two least advanced states in Europe and Asia. And Marx's theories proved so unworkable that Lenin/Stalin and later Mao had to rewrite the book--creating Marxist-Leninist ideology. This was a repudiation of liberalism, and the reintroduction of state controls on a massive scale. Thus rather than new ideas, Marxist-Leninism was in actuality a return to the failed economic approaches of the 18th century monarchies, only the levers of control were indifferent hands. It is no accident that several Communist countries revert to hereditary leadership (Korea and Romania). The 20th century Communists of course went far beyond the monarchical controls of the 19th century, but attempted to totally operate the economy. The results for Russia, China, and other countries attempting this approach was economic failure and poverty. And they required brutal totalitarian police states to operate, primarily because the Marxist idea is so divorced from the inherent nature of man. Marxist thought through the world socialist movement had a major impact on the modern world.
Capitalism essentially built the modern world. Invented in the Netherlands and England (17th century), capitalism was a major factor in the industrial Revolution. Capitalism is surely why the Industrial Revolution occurred in the West and not China which for most of the modern era (meaning since the pas two millennia) has been more technologically advanced than the West. There were of course other factors such as Chinese unity compared to competing Western nation states, but capitalism mut be one of the factors. For the first time in history, ordinary Chinese individuals in substantial numbers were leading prosperous lives, perhaps a third of the population. .
Except in America, capitalism developed before the rise of democracy leading to a concentration of wealth. American independence began in the same year that Adam Smith published Wealth of Nations (1776). And the combination of democracy, capitalism, and a virgin continent created a world power out of a wilderness in a century. In Europe a prosperous middle-class emerged, but the working-class did not fully share in the bounty of capitalism. This was the genius of socialism, Karl Marx published Das Kapital (1848). Many in Europe took to his theories as virtually a new religion. In the chaos of World War I, the first Communist state was born, combining a totalitarian political system and socialist economics. It appeared precisely where Marx predicted it would not -- pre-industrial Russia. It became apparent early n that socialism was not working. Lenin himself instituted market reforms with the New Economic Policy (NEP). This revitalized the economy, but Stalin ended it and doubled down with collectivization resulting in millions of deaths and the ruin of Soviet agriculture which would never recover,
World War II is often seen as the showdown between Fascism and Communism. It is more correctly viewed as a conflict between liberal democracy and the totalitarians.
After World War II similar Communist regimes in Eastern Europe and Asia leading to the Cold War, an economic contest between the capitalist United States and the Communist Soviet Union. . In addition, the newly independent Third World adopted socialist policies which they were convinced would jump start economic development. It proved a disaster. Communism failed. When Communism and Capitalism went toe to toe (divided Germany and Korea), it was clear that capitalism was the most effective and prosperous system. In the Third World, not only did socialism fail to jump start development, but living conditions actually declined in many of the new nations. Eventually the inherent weakness of socialist economics destroyed the Soviet Union.
Third World leaders began to see the inherent strength of capitalism. This began with the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan). Eventually market reforms were adopted in China, resulting in an economic transformation of staggering proportions. We have had discussions with American and European socialists. They dismiss the Third World successes, saying that they are from a small base. Well that was true, but Taiwan and South Korea no longer have small bases. South Korea has, for example, has GDP approaching that of Italy. And certainly in China has grown to staggering proportions, although China is difficult to assess because it has a totalitarian government in which economic statistics are state secrets. But what is sure is that Third World countries are growing and becoming more prosperous. Asia in particular even ex China is a growing part of the world economy. Europe unfortunately is not.
As capitalist market reforms were bringing prosperity to the Third World at a pace never believed possible, socialism as undermining the economies of Europe. The bright hope of European unification beginning with the European Coal and Steel Community (1951) brought considerable gains in the aftermath of World War II. Europe achieved economic successes without parallel in its history. And it was widely believed that the European Union (EU) (1993) and the Euro would ensure continued prosperity. I can recall talking to European friends, many of whom thought that America as in decline and was being eclipsed by Europe. But Europe had increasingly turned to Socialist economics and by the time the contrast between the market reforms and the economic straight jacket of socialism was becoming increasingly apparent. This finally reached a crisis when the EU periphery began to go bankrupt (2009). The EU managed to paper over this crisis, but the unresolved problems at the periphery are now appearing at the EU core (2014). Of course the socialist welfare state was developed with all the best intentions. And because it was funded by a prosperous private sector, it bough prosperity. But in country after country, governments had to begin borrowing money to meet the demands of the welfare system--essentially stealing from the next generation. Gradually socialist governments imposed more and more demands on the private sector as well a an increasingly restrictive legal framework. The result has been slowing growth and actual decline in some cases, high unemployment (especially youth unemployment), rising taxes, and increased borrowing. Another important concern is the impact on the invasion spawned by capitalism throughout Europe.
This can be seen most dramatically seen in the field of information technology, the whole computer revolution. The ECB has attempted to prevent financial disaster by backing sovereign bonds. But fiscal policy can keep the lid on only so long. Major market reforms are needed. he Eu economy is plagued with bad government policies: including excessively high taxes, job-destroying labor regulations, astronomical government spending (governments of course don’t generate wealth), government/corporate cronyism, an ever expanding body of rules and edicts, and tragically flawed monetary policies. This all restricts the pulse of commercial activity which is the basis of the economy and on which both personal prosperity and government social programs rest. There is no evidence, however, that European voters are prepared to support candidates prepared to make the needed reforms. In fact, the Greek public which was the touchstone of the crisis looked favorably on politicians (SYRIZA party) prepared not only to reject reform, but adopt even more radical socialist policies than those that drove the country into bankruptcy (2010s). Then the British hocked Europe by voting to exit the EU (2016). Driven by decades of post-2008 economic stagnation, restrictive EU fiscal rules, and migration crises, public and political sentiment has shifted. Economic stagnation has caused the European public to question the major established parties. British elections dhow hat the British public is rejecting the two main parties (2026). Euro-skeptic parties have steadily grown in Western Europe especially (France, Italy and Germany Italy). The whole European Project would be threatened even if one of these countries leave the EU. The reason for this is that incomes have been declining. This is primarily the result of Socialist policies along with increasing deficits to expand the generous welfare spending. And these problems increase even though America financial support. (Most Europeans are aware that Americas is financing their defense, fewer are aware of American support for health care. Now while the European economy is stagnating, few Europeans seem to be giving up on socialism.
And America is not far behind.
The failure of democratic socialism should not be seen as a purely economic problem. When the liberal democracies fail with economic polities, the dictators and totalitarians are empowered.
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